- Protect your company's patents and trademarks in China if you manufacture or source in China, or if your company plans to sell or manufacture in China in the future.
- File your company's trademarks in China at the time of filing trademarks in other countries.
- Use China's dual-track "utility model and utility patent" application filings to protect your company's innovations.
- Monitor current trends of increasing China patent litigation and patent infringement damage liability.
- Consider Hong Kong as a separate "country" from China with different IP laws and jurisdiction.
Should Companies Continue to Invest in Protecting Their Intellectual Property in China if They Can't Enforce It?
Over the past decade, the rule of law has noticeably strengthened throughout China, the world's second largest economy. Chinese intellectual property (IP) laws now embody many legal concepts familiar to most U.S. IP lawyers. China's IP enforcement laws and administrative procedures remain notoriously lax, however, and, as many U.S. and foreign companies believe, are not effective for most IP owners. While invoking protection for IP in China appears to be a popular move for companies doing business in that country, the relatively lax enforcement has been a significant obstacle to realizing the full value of IP in China. The disparity between IP protection and enforcement in China has put U.S. companies in the difficult position of asking: "Should we continue to invest in protecting our IP in China if we can't enforce it?" As the Chinese consumer market continues to grow and the growth opportunities outweigh the apparent risks of doing business in China, companies should monitor IP trends in China and adjust their IP strategies as needed.
U.S. and Foreign Companies Are Protecting IP in China at an Increasingly Greater Rate.
Even with the apparent weakness in Chinese IP enforcement laws, China has become the world’s largest source of filed patent and trademark applications. In the most recent publicly available statistics, double-digit, year-to-year increases have led to 2.36 million patent applications and 2.22 million trademark applications being filed in China. An estimated 15% of the filed utility patent
“As the Chinese consumer market continues to grow and the growth opportunities outweigh the apparent risks of doing business in China, companies should monitor IP trends in China and adjust their IP strategies as needed.”
applications in China, and 24% of the filed trademark applications in China, were filed by foreign entities, of which U.S. applicants were the most numerous. The number of Chinese patent and trademark applications filed by U.S. and foreign entities evidences increasing confidence in mechanisms to protect IP in China. However, continued perceptions of the relatively lax enforcement of IP in China could begin to taper the number of foreignoriginated Chinese patent and trademark filings if China’s IP enforcement laws and administrative procedures are not ultimately strengthened.
File First Before Using Technology and Trademarks in China.
For patents, China is a “first to file” country. Similar to U.S. patent law, Chinese law requires an inventor desiring to protect his or her invention to file a patent application; the filing establishes a priority date for the invention. Similar to U.S. patents, Chinese patents provide an exclusive right to make, use or sell a claimed invention. Thus, a United States company with an invention developed in China by Chinese inventors should file, as soon as possible, a Chinese patent application to protect the invention in China.
For trademarks, China is also a “first to file” country. This is similar to most other countries except the United States, which is a “first to use” country. In China, the filing of a trademark application is the first step to protect a trademark. Thus, Chinese trademark rights are obtained by first filing for a trademark rather than first using the trademark in China. Note that a company exclusively using a trademark in the United States will obtain only U.S. rights in the trademark, and should aim to be the first to file for the trademark in China to obtain corresponding Chinese trademark rights.
For both patents and trademarks, the filing of a U.S. application for a patent or a trademark can establish a priority date, which can be relied upon, within a certain period of time, for filing a corresponding Chinese patent or trademark application. If China is a potential consumer market or manufacturing source for a product or service claimed by a U.S. patent or patent application, or promoted under a U.S. trademark, companies should file corresponding Chinese patent and trademark applications within the applicable deadlines to claim priority to the U.S. patent and trademark applications. Failure to timely file corresponding Chinese patent and trademark applications could lead to a potentially embarrassing discovery that a competitor or manufacturer has filed a Chinese patent or trademark application that could block or prevent a U.S. patent and trademark owner from obtaining the corresponding Chinese rights.
Inventions can be protected in China using utility model patents. In 2014, a slightly higher number of utility patent applications (928,177) compared to utility model applications (868,511) were filed in China. Chinese applicants filed a majority of those utility model applications. Chinese patent law differs from U.S. patent law in that applicants in China can file utility model applications, which are different from the utility patent and design patent applications available in the United States. Chinese utility model applications protect apparatus, shapes and structures,
but not processes or compositions of matter. Utility model applications undergo a less rigorous and quicker substantive examination process, usually three to 10 months rather than the three to five years typical for utility patent applications. Issued utility model patents have a term of only 10 years in contrast to the 20-year term of utility patents. Thus, to take advantage of the utility model option, one strategy to protect inventions in China is to consider filing both a utility model application and a utility patent application on the same invention. Depending on the product lifecycle and need for immediate patent protection, an applicant can opt to obtain the utility model patent, assuming it issues first, or continue to pursue a utility patent for the invention if a longer term of protection is desired. A decision between utility model patent protection and utility patent protection should be made by the applicant at the time of the first patent issuance, since Chinese law does not permit issuance of both types of patents for the same invention.
Patent litigation is increasing in China but Chinese law on infringement damage awards and injunctions is still catching up. Even though patent litigation in China is still
“Almost 80% more patent litigation cases are filed in China than in the United States.”
viewed by many U.S. and foreign companies as a risky proposition with more downside than advantage, China is now the world’s leader in filed patent litigation cases. Almost 80% more patent litigation cases are filed in China than in the United States. U.S. and foreign entities accounted for only about 10% of the patent litigation cases in China, thus Chinese entities are filing most of the cases. Patents in pharmaceuticals, information technology, automotive technology, and the entertainment or toy industries are the most frequently asserted types of Chinese patents. Almost a quarter of all Chinese patent litigation cases are filed in Beijing, with the number of filed cases in Shanghai and Guangzhou following close behind.
While patent infringement damage awards in China can be based on the actual loss due to the infringement, the profit of the infringer, or a reasonable license fee of the patent (familiar concepts under U.S. patent law), there are reports of difficulties in using Chinese law and procedures to gather sufficient evidence to establish larger damage awards. Other reports indicate that some Chinese courts use another Chinese law to limit the damage awards to one million RMB ($156,000). Chinese law provides for preliminary and permanent injunctions, but some reports indicate that the standards for obtaining any injunctive relief in China are relatively high and difficult to meet in patent litigation cases.
Currently, Chinese IP enforcement laws are still evolving. Although most patent litigation in China appears to involve Chinese companies suing other Chinese companies, as the number of U.S. and foreign IP rights holders increases in China, more U.S. and foreign companies may begin using Chinese IP enforcement and administrative procedures to leverage their Chinese IP portfolios. Future developments in Chinese patent litigation, damage awards and injunctive relief should continually be monitored to sufficiently evaluate the risks of patent infringement liability in China.
Hong Kong Is Part of China, but Administers a Pro-Western Style of IP Law.
Almost 20 years ago, Hong Kong reverted back to China. Under the Basic Law “one country, two systems” agreement with China, however, Hong Kong retains many of its own laws until 2047. Hong Kong still administers its own IP laws, which are different from the IP laws in China. When pursuing patents and trademarks in China, additional registrations should be obtained to protect patents and trademarks in Hong Kong. The Basic Law also preserved a judiciary system originating from the earlier British presence, and thus Hong Kong’s IP enforcement law and administrative procedures are relatively strong compared to China’s. While Hong Kong’s relative economic importance to China has diminished, Hong Kong still serves as a global financial center and maintains a strong manufacturing and export presence for the southern part of China. Thus, to maximize IP protection coverage and enforcement options in China, companies should consider filing for Hong Kong patents and trademarks.